I've been in love with video games since I was a kid and have been fascinated by entrepreneurship since my first year of college at Carnegie Mellon University. Now I want to turn those dual passions for games and entrepreneurship into an career through my work with cool new game concepts and ideas.
I currently do Marketing and Customer Development for Betable, which has built the only platform in the world that legally lets you integrate gambling into your games.

Three Steps from Paid to Freemium

This is a guest post by Michail Katkoff, who works on Monetization at Rovio Entertainment. He writes about his experiences with social and mobile game monetization regularly on his Deconstructor of Fun Twitter.

Cut The Rope: Experiments saw its ranking jump from 31 to 1 in two days when it switched to freemium.

A quick glimpse on the top grossing games list in App Store and you’ll spot several freemium titles on the top. You see year old titles such as freemium apps now account for over 65% of iOS app revenue. You start to wonder… what if you turned your paid game into a free one? Would this be a good business decision? I put together the following three steps to help you analyse this situation logically and come to the right conclusion for your game.

1. Make the Business Case

Before cutting the price of your app to zero, you need to have a business case ready. Projections of potential growth rates and conversion expectations will be key factors in your decision to go freemium. To get started, you need to construct several scenario analyses based on three key variables: daily active users (DAU), conversion rate (from free to paying), and average revenue per paying user (ARPPU).

Picture 1: An example of a projection formula, which takes into account different combinations of growth, conversion and spending scenarios

Daily Active Users

The whole idea behind cutting away the price of the app is to significantly increase the amount of installs. The increase in installs your app will be getting depends on several variables, such as the current rank in app store, current price, marketing, promotion, and potential cross promotion. Based on these variables, cutting your price to freemium could have a huge impact on your growth. To try this out, you can list your app on a “free app a day” site to see what the combination of promotion and price does to your download rate. (See Picture 2 below to see what kind of installs difference you might see from making your app freemium.)

Also, you should be tracking and aware of the ratio of daily active users to your total users. This will give you an idea of how engaging your game is, and how many of your users will be likely to pay in a freemium game. This leads to our next variable, Conversion.

Picture 2: Estimation of Apple App Store downloads and ranks

Conversion

The amount of paying users is very game specific issue and varies typically between 1% and 5%. The reason why I want you to look at your DAUs specifically is because you’ll likely only convert your players once they are engaged. When converting players from free to paying, avoid aggressive offers and steep progression curves to maximize retention, and thus the long-term conversion (read more: Primed Spend). That way, you won’t be sacrificing engagement later for revenue now.

Picture 3: Increase ARPPU by offering large bundles. Indicate the value of larger purchases with a combination of graphics and texts

Average Revenue Per Paying User (ARPPU)

The final variable of the formula is the ARPPU, which is tied to the in-app purchase offering of your app. To maximize ARPPU, you should always try to offer high-value high-price bundles as according to my experience the demand tends to be quite price-inflexible when it comes to high purchase points.

Also, favor consumable items instead of permanent items both in your game and in your promotions. These are more valuable to engaged players because they will use the items during gameplay, and their consumable nature increases re-purchases (read more:Monetizing Free-to-Play Games).

2. Create Demand & Offering

Before you transition your game to freemium, you need to create offerings (in-app purchases and purchase points), and then ensure that there is demand for those offerings. There are two ways you can create demand for in-app purchases: Restrictions and Achievements.

Restrictions

Restricting gameplay creates a strong incentive for in-app purchases. However, there are few rules you should remember when restricting players’ gameplay.

First, don’t confuse restrictions with walls. By this I mean that players should be able to progress without paying, and restrictions are there only to slow this progress. You are selling a shortcut, not the gameplay itself, which will prevent players from being frustrated.

Secondly, start with light restrictions, and then increase them slowly and steadily. This way, you won’t scare away players in the beginning, and once player are engaged they will either convert to paying or wait out even the toughest restrictions.

Lastly, always offer at least two purchase options to bypass the restriction. An example of this would be a smaller amount of paid currency and a significant amount of free currency, while the other option would be a larger amount of paid currency. The intention is to make the small price point offer look extremely unattractive and thus incentivize players to make the reasonable purchase with the higher price point.

Example of Restriction Mechanism:

Title X is a puzzle game, which has players passing various levels. Levels are made into level packs with each pack containing 10 levels. To restrict the progression, you have added a timer mechanic so that every time players complete a level pack they have to wait for a specific time until they can continue the adventure. Players can skip the waiting period by either purchasing a single unlock, which unlocks the next level pack (10 levels), or by unlocking all the level packs (100 levels) with a slightly larger purchase. The waiting period grows after each completed level pack, making the all levels unlock purchase more and more attractive.

Example of Restriction Mechanism

Achievements

In place of or in addition to restricting the player’s progress, you can also add achievements, which reward players for perfecting each level. Now, to perfect a level a player needs to usually play more and refine their strategy, which drives engagement. The first achievements should be pretty easy, but as players progress the achievements should become harder and harder to reach (and therefore demand more play sessions). This leads to demand for boosters and power ups, which assist players in their quest to perfect each level and earn the achievement.

Example of Achievement Mechanism:

Title X is a racing game. For each level, a first place finish earns player 3 stars from that level. Every sixth level is visibly locked in the level selection screen, and the sixth level is typically a more interesting or unique level design. To enter the locked level, a player must get a first place finish in all five previous levels. Players can improve the chances of winning a race by purchasing consumable boosters with in-app purchases, or they can purchase the ability to open the chest outright.

Example of Achievement Mechanism

3. Track and Adjust

Now you have a business case, which gives you goals to shoot for in order to make your game a freemium success. You’ve created offers with build-in demand to encourage in-app purchases. Now, in order to successfully make the switch from paid to freemium, you need to implement tracking around your key metrics. Once the app transitions from paid to free in the app stores, the development and marketing teams should be looking to optimize the game based on the data they get.

Be sure to keep the above Restrictions and Achievements in mind when setting up your tracking. Tracking and analyzing the data is essential, both for improving your monetization and engagement and to know how are you doing with regard to the business case you’ve made. Once you know where you stand, it’s much easier to prioritize following updates and achieve the business goals you’ve set.

So now that your game is freemium and you’ve got disappointing numbers, how do you adjust? Let me give you some suggestions below:

DAU

Going from paid to free should be accompanied with a marketing and PR campaign. Have you game featured on FreeAppADay and various blogs and tweets to ensure exposure. If you have other titles, go hard on cross promotion. If this is your only title than consider buying cross promotion (Android only). And featuring from Google or Apple is naturally worth crawling for…

ARPPU

Low ARPPU means usually that either your prices are too low (counterintuitive, but remember only 1-5% of your players are buying) or that your larger price points fail to offer the perceived higher value. Take a closer look at the data and see at which point in the game users are making purchases and what are they purchasing. Once you know this information, you can rearrange you offering so that it better suits players in those converting phases of the game. At the same time, make sure you unbalance the price points so that the higher prices offer unbeatable value compared to the lower ones. Again, because only 1-5% of your players are buying in most games, you want to give them a lot of incentive to make a larger purchase.

Conversion

Conversion is the toughest variable of them all to improve. When it’s low, it implicates that the demand you’ve created isn’t strong enough, or that your in-app offering doesn’t answer to the demand. If you suspect that either of those two cases is true, you need to go back to step two and really analyze how players are playing the game.

However, be sure that you’re not missing the low-hanging fruit in your design and user experience. I’ve seen games where purchasable content is simply too well hidden to be noticed because designers are afraid it might scare players. Don’t be afraid! While you don’t want to be obnoxious about it, most players are now used to freemium games and are not fazed by prompts to buy in-app purchases. From your data, see what percentage of DAUs is seeing the purchase wall. If it’s below 20%, you need make better use of various screens in the game, such as Level Failed, Level Selector and Welcome Screen. In particular, Level Failed is a great place to sell your in-app purchases because players are looking for ways to improve their play.

Picture 4: Hambo makes excellent use of the pause screen with several buttons leading players to convert.

Conclusion

In the end it’s all about understanding the difference between paid and freemium business models and analysing the potential of your paid game succeeding as a freemium version. The key is in creating demand and giving players the possibility to fulfil the demand with in-app purchases. And one final thing I want to mention: don’t expect to nail the transformation to freemium instantly. You need track and adjust your game to improve your numbers and revenue. Going from paid to freemium is a tough challenge, but if you execute well then it will certainly pay off. Good luck!